MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) In 1999, demonstrators representing a mix of traditional and new ideologies disrupted a major
1) _______
international trade meeting in Seattle of
A) WTO.
B) the OECD.
C) NAFTA.
D) GATT.
E) None of the above.
2) For the 50 years preceding 1994, international trade policies have been governed
A) by the World Trade Organization.
B) by an international treaty known as the General Agreement on Tariffs and Trade (GATT).
C) by the International Monetary Fund.
D) by the World.
E) None of the above.
2) _______
3) Since 1995, trade rules have been enforced by
A) the GATT.
B) The U.S. Congress.
C) the WTO.
D) the G10.
E) None of the above.
3) _______
4) Cost-benefit analysis of international trade
A) is empirically intractable.
B) focuses attention primarily on conflicts of interest within countries.
C) focuses attention on conflicts of interests between countries.
D) is basically useless.
E) None of the above.
4) _______
5) External economies of scale
A) may be associated with a perfectly competitive industry.
B) cannot be associated with a perfectly competitive industry.
C) tends to result in one huge monopoly.
D) tends to result in large profits for each firm.
E) None of the above.
5) _______
6) A monopolistic firm
A) can sell as much as it wants for any price it determines in the market.
B) cannot sell additional quantity unless it raises the price on each unit.
C) will never sell a product whose demand is inelastic at the quantity sold.
D) cannot determine the price, which is determined by consumer demand.
E) None of the above.
6) _______
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7) International trade based solely on internal scale economies in both countries is likely to be
carried out by a
A) relatively small number of competing oligopolists.
B) relatively small number of price competing firms.
C) relatively large number of price competing firms.
D) monopoly firms in each country/industry.
E) None of the above.
7) _______
8) If a good is imported into (large) country H from country F, then the imposition of a tariff in
country H
A) raises the price in country H and cannot affect its price in country F.
B) lowers the price of the good in H and could raise it in F.
C) raises the price of the good in both countries (the "Law of One Price").
D) raises the price of the good in H and lowers it in F.
E) lowers the price of the good in both countries.
8) _______
9) Internal economies of scale
A) may be associated with a perfectly competitive industry.
B) cannot be associated with a perfectly competitive industry.
C) are associated only with sophisticated products such as aircraft.
D) cannot form the basis for international trade.
E) None of the above.
9) _______
10) Complaints are often made to the International Trade Commission concerning foreign
"dumping" practices. These complaints typically claim that
A) U.S. firms are harmed by the unfair pricing of foreign exporters.
B) foreign companies are charging exorbitant prices that are higher than the true value of the
products.
C) foreign companies are charging prices that are lower than prices they charge countries
other than the U.S.
D) U.S. consumers are harmed by the lack of quality control or health concerns in foreign
countries.
E) None of the above.
10) ______
11) A firm in monopolistic competition
A) earns positive oligopoly profits because each firm sells a differentiated product.
B) earns zero economic profits because of free entry.
C) earns positive monopoly profits because each sells a differentiated product.
D) earns zero economic profits because it is in perfectly or pure competition.
E) None of the above.
11) ______
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12) A redistribution of workers from low to high real wage countries will eventually result in
A) lead to equal real wages in all countries.
B) lead to equal income distribution between land owners and workers.
C) a higher level of international investment and trade.
D) lower the world's output as a whole.
E) None of the above.
12) ______
13) Most U.S. direct foreign investment occurs in
A) communications.
B) petroleum.
C) agriculture.
D) manufacturing.
E) None of the above.
13) ______
14) International borrowing and lending may be interpreted as one form of
A) unrequited international transfers.
B) inter-temporal trade.
C) trade in services.
D) intermediate trade.
E) None of the above.
14) ______
15) A country that has a comparative advantage in future production of consumption goods
A) will tend to be an international investor or lender.
B) will tend to have good work ethics.
C) will tend to have low real interest rates.
D) will tend to be an international borrower.
E) None of the above.
15) ______
16) Ad valorem tariffs are
A) the same as import quotas.
B) import taxes stated in ads in industry publications.
C) import taxes calculated as a fixed charge for each unit of imported goods.
D) import taxes calculated as a fraction of the value of the imported goods.
E) None of the above.
16) ______
17) In the country levying the tariff, the tariff will
A) increase consumer surplus and decrease producer surplus.
B) decrease consumer surplus and increase producer surplus.
C) decrease both the consumer and producer surplus.
D) increase both consumer and producer surplus.
E) None of the above.
17) ______
18) Tariff rates on products imported into the U.S.
18) ______
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A)
B)
C)
D)
E)
have risen steadily since 1920.
have dropped substantially over the past 50 years.
were prohibited by the constitution
reached an all time high in 2002.
None of the above.
19) The international capital market is
A) a set of arrangements by which individuals and firms exchange money now for promises to
pay in the future.
B) the arrangement where banks build up their capital by borrowing from the Central Bank.
C) the place where emerging economies accept capital invested by banks.
D) the place where you can rent earth moving equipment anywhere in the world.
E) None of the above.
19) ______
20) Internal economies of scale arise when the cost per unit
A) rises as the industry grows larger.
B) falls as the industry grows larger.
C) rises as the average firm grows larger.
D) falls as the average firm grows larger.
E) None of the above.
20) ______
21) External economies of scale arise when the cost per unit
A) rises as the industry grows larger.
B) falls as the industry grows larger rises as the average firm grows larger.
C) falls as the average firm grows larger.
D) remains constant.
E) None of the above.
21) ______
22) International labor mobility
A) is in accordance with the Heckscher-Ohlin factor proportions model.
B) leads to wage convergence by raising wages in destination country and lowering in source
country.
C) is in accordance with scale economy model.
D) leads to wage convergence by raising wages in source and lowering them in destination
country.
E) is in accordance with the specific factors model.
22) ______
23) In the exporting country, an export subsidy will
A) help consumers and raise the overall economic welfare of the exporting country.
B) hurt consumers and lower the overall economic welfare of the exporting country.
C) help consumers but lower economic welfare of the exporting country.
D) hurt consumers but raise the overall economic welfare of the exporting country.
E) None of the above
23) ______
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24) The United States is less dependent on trade than most other countries because
A) the United States is a relatively large country.
B) many countries invest in the United States.
C) the United States is a "Superpower."
D) the military power of the United States makes it less dependent on anything.
E) the United States invests in many other countries.
24) ______
25) Where there are economies of scale, an increase in the size of the market will
A) increase the number of firms and lower the price per unit.
B) decrease the number of firms and lower the price per unit.
C) decrease the number of firms and raise the price per unit.
D) increase the number of firms and raise the price per unit.
E) None of the above.
25) ______
26) American labor unions have recently maintained that U.S. multinational corporations have been
A) importing cheap foreign workers by keeping U.S. investment at home.
B) exporting American jobs by keeping investment in the United States.
C) exporting American jobs by investing overseas.
D) importing cheap foreign labor by shifting U.S. investment overseas.
E) None of the above.
26) ______
27) Which type of tariff is forbidden in the United States on Constitutional grounds?
A) export tariff
B) prohibitive tariff
C) specific tariff
D) import tariff
E) None of the above.
27) ______
28) Intra-industry trade will tend to dominate trade flows when which of the following exists?
A) large differences between relative country factor availabilities
B) constant cost industries
C) small differences between relative country factor availabilities
D) homogeneous products that cannot be differentiated
E) None of the above.
28) ______
29) In industries in which there are scale economies, the variety of goods that a country can produce
is constrained by
A) the fixed cost.
B) the size of the labor force.
C) anti-trust legislation.
D) the size of the market.
E) None of the above.
29) ______
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30) Monopolistic competition is associated with
A) explicit consideration at firm level of the feedback effects of other firms' pricing decisions.
B) cut-throat price competition.
C) product differentiation.
D) high profit margins.
E) None of the above.
30) ______
31) If an industry is imperfectly competitive, and markets are segmented then
A) a firm may find that it has lost its comparative advantage.
B) a firm may find that it is profitable to engage in dumping.
C) a firm may find that international trade is unprofitable.
D) a firm may find that it should promote scale economies.
E) None of the above.
31) ______
32) The relative price of future consumption is
A) the relative interest rate.
B) unknown at any given time.
C) the interest rate.
D) the real interest rate.
E) None of the above.
32) ______
33) Why a good is produced in two different countries is known as the question of
A) exploitation.
B) vertical integration.
C) internalization.
D) location.
E) None of the above.
33) ______
34) Multinational corporations
A) make it harder for nations to foster activities of comparative advantage.
B) require governmental subsidies in order to conduct worldwide operations.
C) increase the transfer of technology between nations.
D) always enjoy political harmony in host countries in which their subsidiaries operate.
E) None of the above.
34) ______
35) Suppose the United States eliminates its tariff on ball bearings used in producing exports. Ball
bearing prices in the United States would be expected to
A) increase, and the foreign demand for U.S. exports would increase.
B) decrease, and the foreign demand for U.S. exports would increase.
C) decrease, and the foreign demand for U.S. exports would decrease.
D) increase, and the foreign demand for U.S. exports would decrease.
E) None of the above.
35) ______
36) A tax of 20 cents per unit of imported garlic is an example of a(n)
36) ______
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A)
B)
C)
D)
E)
nominal tariff.
ad valorem tariff.
effective protection tariff.
specific tariff.
None of the above.
37) Which of the following is not a major concern of international economic theory?
A) protectionism
B) exchange rate determination
C) the balance of payments
D) Bilateral trade relations with China
E) None of the above
37) ______
38) The slope of the production function measures
A) the marginal product of labor.
B) the marginal product of capital.
C) the dollar-value increase in output as a country grows.
D) the physical increase in output as country grows.
E) the increase in number of workers as immigration proceeds.
38) ______
39) If the world attained a perfect Heckscher-Ohlin model equilibrium with trade, then
A) workers in the labor abundant country would migrate to the capital abundant country.
B) workers in the labor abundant country would wish to migrate to the capital abundant
country.
C) workers in the labor abundant country would have no desire to migrate to the capital
abundant country.
D) workers in the capital abundant country would migrate to the labor abundant country.
E) workers in the capital abundant country would wish to migrate to the labor abundant
country.
39) ______
40) During the mass migration period of late 19th-early 20th centuries,
A) wages generally rose faster in the destination countries.
B) wages rose in the origin countries and fell in the destination countries.
C) wages fell in the origin countries and rose in the destination countries.
D) wages generally rose faster in the origin countries.
E) wages generally fell faster in the origin countries.
40) ______
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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
41) In Home and Foreign there are two factors of production, land and labor, used to
41) _____________
produce only one good. The land supply in each country and the technology of
production are exactly the same. The marginal product of labor in each country depends
on employment as follows:
Initially there are 11 workers employed in Home but only 3 workers in Foreign. Find the
effect of free movement of labor from the high wage to the low wage country. When
such economic migration ceases, what will be the levels of production, real wages and
the income of landowners in each country?
42) Refer to above figure. With a specific tariff of $3 per unit, what is the quantity of Widget
imports?
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42) _____________
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
43) International trade tends to prove that international trade is beneficial to all trading countries. However,
casual observation notes that official obstruction of international trade flows is widespread. How might you
reconcile these two facts?
44) It may be argued that international labor mobility and trade are substitutes one from the other. Explain.
45) Economic theory in general, and trade theory in particular are replete with equivalencies. For example, it is
argued that for any specific tariff one can find an equivalent ad valorem tariff; and that for any quota one can
calculate a tariff equivalent. Discuss conditions or situations under which a specific and an ad valorem tariff
are not equivalent. Discuss conditions or situations when a tariff and a quota are not equivalent.
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Answer key
1) A
2) B
3) C
4) B
5) A
6) C
7) D
8) D
9) B
10) A
11) B
12) A
13) D
14) B
15) D
16) D
17) B
18) B
19) A
20) D
21) B
22) D
23) B
24) A
25) A
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26) C
27) A
28) C
29) D
30) C
31) B
32) D
33) D
34) C
35) D
36) D
37) D
38) A
39) C
40) D
41) The total production in the world will increase, since the addition to production (the marginal product of labor) in
the target country is larger for each worker than the loss of production (also the marginal product of workers) in the
emigration country. The real wages will rise in the emigration country and fall in the immigration country.
Landlord incomes will rise in the immigration country and fall in the emigration country.
42) 40
43) This question is meant to allow you to offer preliminary discussions of issues, which will be explored in depth later
in the course.
44) workers earning lower real wages will have an incentive to move to a higher-wage country. Using the NeoClassical model framework, this means that countries with relative more labor per unit capital may be said to have
a relative abundance of labor (or a comparative advantage in labor). They will therefore export their labor. Turning
to the Neo-Classical trade model, we know that a country that is relatively labor abundant will export products
(and enjoy comparative advantage) in products that embody relatively more labor. Hence, trade exports labor
indirectly embodied in products. This allows the workers to raise their real wage instead of doing it by physically
moving to the capital rich country.
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45)E.g., during a period of price inflation, an ad valorem tariff would become increasingly more effective.
The government does not receive any of the quota revenues, unless the import licenses are sold or
auctioned.
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